Buying Time

It’s not just Lockheed. A lot of government contractors are breathing a sigh of relief since the White House Office of Management and Budget and the Pentagon assured the defense industry that contracts won’t be canceled the day a potential government-wide budget cut would take effect. And if contractors are sued for failing to notify workers of layoffs related to the budget penalty known as sequestration, the government will pay for the cost.

The assurance was enough to get Lockheed Martin to reverse its stance on sending out the notices that employers are required to send at least two months in advance of major layoffs or plant closings. And word from the Pentagon has also mollified members of the National Defense Industrial Association (NDIA). “The initial impact of sequestration looks like it is somewhat lessened,” says retired Lt. Gen. Lawrence Farrell, president of the NDIA (pdf). Farrell received a letter from Richard Ginman, director of Defense Procurement and Acquisition Policy.

In the long term, if sequestration remains in place, he says, the effects will be the same. “Companies are sitting on a lot of money now,” Farrell says. “They can’t see how to make investments until until they see how the tax, revenue and contracting situation looks on the other side of January.”